Sustainable Brand-Based Innovation (SBBI) led by design thinking:

The case of Bang & Olufsen

In order to illustrate the application of the SBBI model, we chose to apply it to an on-going longitudinal case of the Danish luxury consumer electronics manufacturer Bang & Olufsen (B&O) (Yin, 2003). In-depth interviews with key top management and directors involved in B&O new business innovation projects were carried out in the period of fall 2009 and spring 2010. Managers were asked to retrospectively reflect upon failures and successes of recent new business ventures in the B&O Group. In addition to interviews archival data,

encompassing market surveys and management reports were included as part of the case analysis (Yin, 2003). Our motivation for the choice of the B&O case is grounded in the corporate brand’s substantial equity considering the relative size of the company compared with rivals in the industry such as Sony or Samsung. Furthermore, B&O both operates in a global and high-velocity market and has a long history of pursuing design-driven innovation strategies to shape the market in order to support its product leadership positioning within the category of high-quality audio, video and multimedia consumer products. Thus, a theoretical sampling approach was applied to the purpose of this article (Eisenhardt, 1989; Miles and Huberman, 1994; Yin, 2003).

Roughly a decade ago B&O decided to establish a subsidiary for new business activities.

This unit was established to exploit a recently acquired proprietary acoustic lens technology, which allowed B&O to make loud speakers capable of distributing sound evenly across a room creating perfect sound quality experience, regardless of the listener’s position relative to the speakers. On the basis of these unique resources within sound engineering, the firm’s historical capabilities within industrial design and a strong belief in the power of the

corporate brand to exploit this technology into new business innovations, B&O was driven

by a vision of exploring how to stretch the B&O brand experience from the home to other use situations. One option identified was the development of a mobile phone. The strategy was simple: to offer the market a state-of-the-art sound quality experience presented in a unique B&O industrial design. Another new business strategy, which the management found viable, was to exploit the acoustic lens technology in the in-car sound system market. These two cases are considered in relation to the SBBI model (Figure 1).

6.6.1. The failed entry into the mobile phone market

In 2006, B&O launched the Serene mobile phone. In line with the corporate brand vision of having the ‘Courage to constantly question the ordinary in search of surprising, long-lasting experiences’ (Bang and Olufsen website, 2011a), Serene represented a uniquely styled B&O design including a new approach to the mobile phone keypad reflecting a design-driven innovation approach to market success (See, Verganti, 2009). However, Serene was a failure;

the product was merely on the market for roughly 5 years before being discontinued.

Retrospectively, many reasons have been suggested as to why Serene turned out to be a disappointing investment for B&O. Although this present article cannot address all possible reasons in an exhaustive manner, the novel design of the Serene certainly divided opinions and the fact that the keypad design was poorly designed for text messaging are but some of the possible downsides often discussed (Lee, 2006; Edwards, 2007). As VP and Managing Director of today’s B&O Automotive business, Mr. Zinck explains: ‘the increasing rise of text messaging as a key function of a modern mobile phone was not properly drawn into the design and concept development. This obviously left this new product development output less attractive as the keypad being designed with the keys going in a round circle made it a rather painstaking affair to finish a text message’ (Interview, Jens Peter Zinck, 18 November 2009). Two weaknesses can be identified: B&O did not apply sufficient customer insights to

predict the importance of text messaging (they did not think human) and they did not consider the resource implication of being on the mobile phone market. Simply put,

competing with consumer electronic giants launching incremental product innovations on an almost monthly basis and with the smart phones category simultaneously increasing its market shares, the amount of continuous R&D investments needed to stay competitive far succeeded the scope of the Danish luxury niche brand (they did not think resourceful).

6.6.2. The growing market success of the B&O Automotive division

Fortunately, the mobile phone market was not the only possible avenue of growth pursued by B&O in their new business activities. Application of intuitive consumer insight told

managers that if the target audiences are willing to pay a high price premium for quality and design sound-systems for their homes they might also be willing to pay for such when buying a new car. B&O was convinced of the possibility of shaping a new position in the in-car stereo category (Kim and Mauborgne, 2005). Learning their lesson from the failed mobile phone launch, the management placed a greater emphasis on customer insights; their research showed that the target audience spends much time in the car, as these people are very often characterised as successful professionals living a very mobile life. The strategy was to transpose the B&O experience with the consumer into their car, thus extending the brand where customers are locked-on in one market space and to move them into a new as

information, knowledge and relationship with the brand was already established (Aaker and Joachimsthaler, 2000; Vandermerwe, 2000). On this basis, the company saw the possibility of transposing the established luxury brand position of B&O into new markets and allowing them to establish an immediately credible market position in an otherwise empty market segment. Management was convinced that on the basis of strong firm capabilities they would be able to deliver a superior sound quality, at the time unmatched by the incumbent brands,

combined with offering a superior crafted and bold design with brand connotations of a true luxury lifestyle brand.

However, it proved to be an uphill struggle to convince the targeted car brands that a sound system, priced six times higher than the most expensive ones on the market, could offer a mutually beneficial collaboration. Having toured various potential high-end car brands using traditional presentation tools to convey the message of their business proposition without great luck, the management finally decided to seek market data that could support their intuitive hunch of the project’s viability. An external consultancy was hired and a market analysis carried out with findings in great favour of the proposition. The findings suggested that: the automotive industry was clearly moving in the direction of customisation and personal choices as key sales drivers; that adding a branded stereo as an option of such customisation would benefit car brands substantially; that the B&O brand in fact was one of the most favoured brands in the in-car stereo category even though it was not on the market;

and finally that there simply did not exist a high-end brand alternative for the target audience.

This research made it possible for B&O to argue on more reliable grounds the business viability of the project to potential clients. The German high-end car brand Audi became the first to engage in a constructive on-going dialogue. However, it soon became apparent that the company was facing a wall of scepticism from the Audi procurement officers as to whether B&O would actually be able to deliver on its promise of such a radical new product.

To prove Audi otherwise, it was decided to purchase an Audi A8, one of Audi’s most expensive sedans, and make a 1:1 prototype of an Audi with an integrated B&O sound speaker system. The prototype was driven to the headquarters of Audi and the CEO of B&O was brought along to a meeting with the CEO of Audi. The strong engineering capabilities present in B&O spoke for themselves and combined with the functionality and aesthetics of the prototype as well as by the possibilities for the establishment of a strategic co-branding

partnership the Audi CEO was quickly convinced and agreed to pursue a collaboration with B&O – redeemed by an unambiguous and to the point German rhetoric: ‘Das machen wir!’

(Let’s make this!).

Ever since the first launch in 2005, the B&O Automotive business has experienced

tremendous growth to include a customer portfolio now comprising highly esteemed brands such as Aston Martin, BMW and Mercedes in addition to Audi. Today, B&O Automotive accounts for a substantial part of the B&O group’s aggregated turnover. Powered by the corporate brand vision, this case was a vindication for B&O of the price premium strategy and the power of sustainable brand-based innovation leading to massive market success and numerous awards since 2006 for the best brand in the in-car stereo category (Bang and Olufsen website, 2011b) building and nurturing the intended B&O brand image of a highly innovate brand with a distinct attitude towards designing magical experiences (Bang and Olufsen website, 2011c).

6.7. Towards a better understanding of the corporate brand as a strategic